Tag Archives: FTX

FTX Sues Founder Bankman-Fried’s Parents

Legal, ,

Bankrupt crypto exchange FTX on Monday sued the parents of founder Sam Bankman-Fried, saying that Stanford professors Joseph Bankman and Barbara Fried used the company to enrich themselves at the expense of FTX’s customers, Reuters reported.

FTX, now being led by turnaround specialist John Ray, said that company founder Sam Bankman-Fried ran FTX as a “family business” and misappropriated billions in customer funds for the benefit of a small circle of insiders, including his parents.

According to Reuters, Sam Bankman-Fried has pleaded guilty to charges that he defrauded FTX customers by using their funds to prop up his own risky investments. He is currently jailed ahead of a trial scheduled to begin Oct. 3. Other former FTX executives have pleaded guilty to criminal charges.

Bankman and Fried’s attorneys, Sean Hecker and Michael Tremonte, said in a joint statement that FTX’s claims were “completely false” and the the new lawsuit was a waste of funds that could be returned to FTX customers.

FTX’s lawsuit alleges that Bankman and Fried accepted a $10-million cash gift and $16.4-million luxury property in the Bahamas from FTX, even as the company teetered on the brink of collapse. Bankman and Fried also pushed FTX to make tens of millions of dollars in charitable contributions, including to Stanford University, FTX said.

Fortune reported that in a late court filing on Monday, the bankruptcy estate of FTX sued the parents of Sam Bankman-Fried, seeking to recover millions of dollars that it alleges were fraudulently transferred and misappropriated.

In the 63-page lawsuit, the estate alleges that FTX was a self-described “family business” despite its appearance as a sophisticated cryptocurrency exchange that was “fueled by fraud.” Allan Joseph Bankman, Bankman-Fried’s father, is a top tax law professor at Stanford Law School, and the lawsuit alleges that he played a key role in “perpetuating this culture of misrepresentations and gross management” and in covering up allegations that would have exposed the fraud, Fortune reported.

According to Fortune, the lawsuit also alleges that Bankman-Fried’s parents “siphoned millions of dollars” from the crypto empire for “their own personal benefit,” with the estate now seeking to claw back the funds as part of its bankruptcy process.

The Block reported that bankrupt cryptocurrency exchange FTX has sued Joseph Bankman, and Barbara Fried, the parents of its founder Sam Bankman-Fried, aiming to recover millions of dollars in “fraudulently transferred and misappropriated funds.”

According to The Block, a Monday court filing showed that debtors of FTX and Alameda Research filed a complaint to recover damages caused by fraudulent transfers, breaches of fiduciary duties and other alleged misconduct.

“As Bankman-Fried’s parents, Bankman and Fried exploited their access and influence within the FTX enterprise to enrich themselves, directly and indirectly, by millions of dollars, and knowingly at the expense of the debtors in these Chapter 11 Cases and their creditors,” the filing said.

In my opinion, it seems very odd that the parents of Sam Bankman-Fried allegedly made what appears to be problematic decisions regarding the amount of money they received from FTX. One would assume that Bankman, who is a top tax law professor, would know better.

U.S. Judge Sends FTX’s Sam Bankman-Fried To Jail

Legal, ,

Sam Bankman-Fried, the disgraced wunderkind whose cryptocurrency exchange platform FTX imploded last November, will go from house arrest at his parents’ home to jail, a judge has ordered ahead of his trial on fraud charges, Rolling Stone reported.

In a Friday hearing, Judge Lewis Kaplan of Federal District Court in Manhattan formally revoked Bankman-Fried’s bail, ending his residence with his family in Palo Alto, California, as he prepares a legal defense for a blockbuster case centered on the ruins of a company once valued at $32 billion. The 31-year-old, admired as a brilliant crypto kingpin until his downfall, had been extradited from the Bahamas, where FTX was headquartered, in December. He originally posted a bond of $250 million to be released into his parents’ custody.

Sam Bankman-Fried headed to jail on Friday after a judge sided with a request by federal prosecutors to revoke the FTX founder’s bail over alleged witness tampering, CNBC reported. Bankman-Fried was remanded to custody directly from a court hearing in New York and sent to Brooklyn’s Metropolitan Detention Center, Bureau of Prisons records show.

Judge Lewis Kaplan denied Bankman-Fried’s request for delayed detention pending on appeal. Unless the appeal is successful, he is expected to remain in custody until his criminal trial, which is due to begin on Oct. 2.

“My conclusion is there is probable cause to believe the defendant tried to tamper with witnesses at least twice,” said Judge Kaplan during his ruling.

According to CNBC, the government had requested that Bankman-Fried be remanded to a jail in Putnam, New York, where he’d have access to a laptop with internet access for defense preparation, as opposed to sending him to the Metropolitan Detention Center, the facility closest to the courthouse with limited internet access for prisoners.

CNN reported that prosecutors sought to revoke bail after what they described as a series of violations by Bankman-Fried, including contacting potential witnesses against him, using a virtual private network to subvert monitoring and speaking with a reporter about former FTX executive Caroline Ellison.

Ellison, who is also Bankman-Fried’s ex-girlfriend, is one of several former business partners who has taken an appeal deal and plans to testify against him.

According to CNN, Judge Kaplan on Friday sided with the prosecutors’ claim that Bankman-Fried was “covering his tracks” when he allegedly leaked Ellison’s personal documents to the New York Times by allowing a reporter to review them in-person. Kaplan added that leaking an ex-girlfriend’s intimate writings would only be done “to hurt, discredit and frighten the subject of the material.”

Since his arrest in December, he has repeatedly broken with standard legal advice when it comes to speaking to the media. CNN reported that he has blogged, tweeted, and appeared on live interviews to broadcast his version of FTX’s downfall. In his telling, he admits to making mistakes as CEO but says he never knowingly committed fraud.

I suppose the lesson of what happened to Sam Bankman-Fried is one that other CEOs of crypto companies should pay attention to. Some mistakes, whether done with intent or carelessness, can send a crypto CEO to jail.